Retirement Plans

FedEx to Take $2B Charge on Accounting Change

FedEx's switch to mark-to-market pension accounting allows gains and losses to flow into earnings sooner.
Katie Kuehner-HebertJune 12, 2015

FedEx said Friday it will record an estimated $2.2 billion non-cash, pretax charge for the fourth quarter as a result of ts decision to switch to mark-to-market pension accounting.

The change in accounting method enables FedEx to recognize actuarial gains and losses in the fourth quarter of its fiscal year, rather than amortizing them over many years, the company said.

Net of tax, the charge is valued at $1.4 billion, or $4.88 a share. Before the announcement, analysts polled by Thomson Reuters expected FedEx to post $2.68 a share in adjusted earnings in its fiscal fourth quarter, which ended in May.

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“Adopting the mark-to-market approach will align our accounting to provide greater transparency by removing certain legacy pension costs from segment operating results and recognizing them in a year-end adjustment,” FedEx CFO Alan B. Graf, Jr. said in a news release.

“This change has no operational or cash-flow impact and, importantly, does not affect benefits for plan participants,” he added. “In addition, the funded status of our principal plan remains very strong.”

According to The Wall Street Journal, dozens of other companies, including AT&T, have adopted mark-to-market pension accounting in the last few years.

“The method allows pension gains and losses to flow into earnings sooner than under old rules, which allow companies to smooth out the impact over several years,” the WSJ noted.

FedEx also said Friday it had agreed to a $228 million settlement of a long-running lawsuit alleging it misclassified its U.S. delivery drivers as independent contractors. As a result, the company will book a charge of 47 cents a share in the fourth quarter.

The settlement “resolves claims dating back to 2000 that concern a model FedEx Ground no longer operates,” FedEx general counsel Christine P. Richards said.